In what is being called Operation Twist, by the end of June 2012 the Fed is to sell $400bn of Treasury securities with three or less years to run and use those proceeds to buy longer-term Treasury securities, with maturities of between six and 30 years.
In a formal statement, the Fed explained: “By reducing the supply of longer-term Treasury securities in the market, this action should put downward pressure on longer-term interest rates, including rates on financial assets that investors consider to be close substitutes for longer-term Treasury securities.
“The reduction in longer-term interest rates, in turn, will contribute to a broad easing in financial market conditions that will provide additional stimulus to support the economic recovery.”
The bonds’ purchase and subsequent sale does not put any new money into the economy but is designed to encourage low interest rates to boost business borrowing for companies and mortgage lending for individuals.
The decision was not a unanimous one, with Richard Fisher, Narayana Kocherlakota and Charles Plosser all voting against chairman Ben Bernanke who won through thanks to six fellow supporters.
Closer to home, minutes from the Bank of England show more quantitative easing was discussed at their last meeting although the majority of Monetary Policy Committee members continue to vote against it.
